Modest rise in rate of car depreciation predicted

25-4-2006

A CONTINUED slow-down in sales of both new and used cars, this year, will result in a modest rise in rates of used car depreciation. If you are looking for gap insurance then Click4Gap are here to help.

There will also be an increase in the supply of nearly new vehicles entering the used market, says EurotaxGlass's, adding to the rise.

"There have been falls in sales of new and used cars over the last 12 months and we can reasonably assume that retail sales will continue to be less active through much of 2006," said managing editor, Adrian Rushmore. "This will have a negative impact on used car prices, albeit to a lesser degree than in the aftermath of the mini consumer boom in 2004."

Price falls are likely to be aggravated by the oversupply of new vehicles, where excess unsold stock is registered and then retailed as 'used' after three months. "The practise of selling 3-month-old cars is widespread amongst franchised dealers, and all the signs point to even greater volumes of these nearly new cars being pushed onto the used market in 2006," adds Rushmore.

With over 120 all-new model ranges arriving in 2006 - more than in any previous year - carmakers have high expectations that new models will compensate for the loss of sales from established product lines. However, most forecasters are predicting registrations to fall by around 2.5 to 5%, increasing the prospects of oversupply. "This would lead to lower residuals for one, two and possibly three-year-old cars this year," said Rushmore.

The values of 1-year-old cars fell by around £500 in 2005, while those of 3-year-old vehicles remained firm by comparison. "This narrowing of price differentials can only continue for so long, because at some point retail customers will perceive the younger car to be better value for money. It is at this stage that prices for three-year-old cars are likely to suffer."

Without the distress marketing of more new cars this year, the market would suffer only a moderate downturn in used car prices. "However, we fear that the pressures will intensify and the ripple effect will extend to the 3-year-old car. Nevertheless, it currently remains the case that the younger the car, the greater the instability of prices."